Geithner about-turn on dollar status shocks currency markets

Sterling jumped more than a cent against a sharply falling dollar on
Wednesday, with the greenback winded after US Treasury Secretary Timothy
Geithner said he was "quite open" to China's suggestion of moving
toward SDR-linked currency system, Reuters reported.

Geithner about-turn on dollar status shocks currency markets

2:33PM GMT 25 Mar 2009

By 1408 GMT, the pound had jumped to a session high of $1.4725.

However, the dollar soon pared losses after the Treasury Secretary added that the dollar was likely to remain the world's reserve currency for a long time.

"The market is purely reacting to the Geithner comments and it's taken out a whole load of stops [in euro/dollar and cable]," a London-based trader said. "With a comment like that people just cut all their positions."

Initially, investors viewed the comment as an about-turn because on Tuesday Mr Geithner had firmly dismissed suggestions that the global economy move away from using the dollar as the main reserve currency.

In a congressional hearing on Capitol Hill, US Republican Michele Bachmann, a Minnesota Republican, asked Mr Geithner: "Would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested this morning by China and also by Russia, Mr Secretary?"

Related Articles

Chinese central bank chief Zhou Xiaochuan on Monday urged an overhaul of the global monetary system to allow for wider use of Special Drawing Rights (SDRs) created by the International Monetary Fund as an international reserve asset in 1965.

Mr Zhou's comments followed remarks by Russia last week which said it would put forward a proposal at a meeting of the Group of 20 in London on April 2 for the creation of a new global reserve currency.